Author: Rafael Gómez / 5 minutes read.
There is never a comfort zone in Revenue Management. Rapid and constant changes that must always keep us alert. Now, we must add “The great challenge”. The challenge of facing this unique situation never seen before, not having precedents or clues to help us for right strategic decisions.
The bases on which Revenue Management is based relies on its definition: “Selling the right room, to the right client, at the right moment, for the right price, through the right distribution channel, with the best cost efficiency”.
In principle, if we analyze everything that Revenue Management mentions in its definition, we observe that in the midst of the COVID-19 crisis, some of these components are impacted. The product is the same; however the customer, the price strategy, the time of sale and the distribution channel are seriously altered by the circunstances.
It is precisely at this point that Revenue Management becomes more important within the hotel to establish the correct strategy that mitigates losses. The strategic and critical part about the new situation is the one that will guide the hotels on their return to a certain relative normality. It is time not only to rethink the strategy, it is also crucial to rethink the entire business model.
And where are the Revenue Management systems in this situation?
Revenue Management systems that calculate demand based on historical data must reprogram their demand and price calculation algorithms to align with this new reality. This will avoid that the volume and price recommendations are out of the market reality and therefore lose position if the recommendations are followed. Likewise, once there is some normality, these systems should be adjusted again to provide correct estimates and strategies that not impacting the hotel performance. Therefore, manipulating the system is essential, but this must be done in a rational and analytical way.
I have always mentioned that the position of a good Revenue Manager must be analytical and with a global vision perspective, thus making the difference between one professional and another. Now everything is accentuated even more, being necessary to question the way in which we have been working and rethink the business model. Revenue Management systems no longer help us as much in this situation and it is necessary to lay the foundations to determine a forecast that is as realistic as possible, in order to analyze the hotel’s operating account and the profitability of the business compared to opening.
From RevenueResort.com we consider that the keys at this time go through “rethinking” the following factors:
Prices: You should never lead the drop as we mentioned in a previous post. The best practice is to offer added values instead of price drops. Different studies suggest that the sharp drops in prices are directly proportional to the length of the period of time it takes to recover the initial price. A measure that was never sufficiently estimated at the time of lowering the price and that penalizes the results of the hotel in the medium-long term. Many times, even with the market in “normal mode”, we are still unable to recover the price entirely due to the sharp price drops in the past. Therefore, added value without drastic price drops is one of the most considerable options in pricing.
“Blue thinking”: This is the crucial part to adequate the business model to the new reality. For example, if it is an all-inclusive hotel offering buffets, it will be necessary to adapt to a new regulations by analyzing costs and services. The markets that have been feeding the hotel in recent years must also be rethought. Perhaps now we have to add another type of client or focus on alternative services demanded by the guests. Even drastic seasonal changes in strategy must be applied to adapt to the reality of the seasonal summer and winter market for Resorts located in the Canary Islands.
“Global Revenue Management”: The perspective of a good Revenue Manager must go through analyzing all the income opportunities of the hotel, such as F&B (food and beverages), Spa, Golf. In this way, more attractive packages can be designed that complement and help the hotel GOP and not only focus on the room part. It is certainly important to rethink also the F&B venues, settings and concepts such as upselling and cross selling not only for rooms.
Segmentation: Is a new segmentation necessary? Definitely the closest resident market is the one that will be crucial for the short term and therefore, it will be necessary to segment it to be able to analyze it in the future and incorporate it into the hotel’s strategies.
Distribution: In the short term we can think of “everything is valid” in terms of distribution channels to try to get business. However, at RevenueResort.com we think that we must continue tracking carefully the channels that cannibalize direct sales or the general pricing strategy. Well, it is necessary to consider that customer behaviour will be the same, and if they see that another channel is offering the same product at a lower price, be sure that the guest will keep booking through that channel and you will also pay the bill with a lower net rate for that booking.
It is therefore time to take the most analytical and critical thinking to establish a strategy that minimizes the impact produced by this unique situation in our recent history.
Especially for Resorts, it is important to monitor the flights scheduled by market and destinations in detail, to be aware and track the potential we have once the air traffic is recovering.